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USPTO Implements Micro-Entity Discount Effective March 2013

The United States Patent and Trademark Office (USPTO) is revising the rules of practice in patent cases to implement the micro entity provision of the Leahy-Smith America Invents Act (AIA). See Changes To Implement Micro Entity Status for Paying Patent Fees 77 FR 75019 (December 19, 2012). Certain patent fees set or adjusted under the fee setting authority in the AIA will be reduced by seventy-five percent for micro entities. The USPTO is revising the rules of practice to set out the procedures pertaining to claiming micro entity status, paying patent fees as a micro entity, notification of loss of micro entity status, and correction of payments of patent fees paid erroneously in the micro entity amount.

In a separate rulemaking, the Office is in the process of proposing to set or adjust patent fees under the Leahy-Smith America Invents Act, including setting fees for micro entities with a seventy-five percent reduction. The Office has sought to address the concerns of its stakeholders as expressed in the public comment, and plans to seek additional public comment on the micro entity provisions after the Office and the public have gained experience with the micro entity procedures in operation. The Office will pursue further improvements to the micro entity procedures in light of the public comment and its experience with the micro entity procedures.

These new rules become effective March 19, 2013.

Summary of Major Provisions

The Office is adding a provision to the rules of practice pertaining to micro entity status. The provision sets out the requirements to qualify as a micro entity tracking the statutory requirements for a micro entity set forth in section 10 of the Leahy-Smith America Invents Act.

The provision also sets out procedures relating to micro entity status that largely track the regulatory requirements and procedures in 37 CFR 1.27 for small entity status. These new procedures pertain to claiming micro entity status, paying patent fees as a micro entity, notifying the Office of loss of micro entity status, and correcting payments of patent fees paid erroneously in the micro entity amount. The procedures for claiming micro entity status require the filing of a certification of entitlement to micro entity status.

The Office is developing forms (paper and electronic) for use by members of the public to provide a certification of micro entity status. The procedures for paying fees as a micro entity provide that a micro entity certification need only be filed once in an application or patent, but that a fee may be paid in the micro entity amount only if the applicant or patentee is still entitled to micro entity status on the date the fee is paid. The procedures pertaining to notifying the Office of loss of micro entity status and correcting payments of patent fees paid erroneously in the micro entity amount track the corresponding small entity provisions for notifying the Office of loss of small entity status and correcting payments of patent fees paid erroneously in the small entity amount.

Establishing Micro-Entity Status

To establish micro entity status under the applicant must certify that:

The applicant qualifies as a small entity as defined in § 1.27;

Neither the applicant nor the inventor nor a joint inventor has been named as the inventor or a joint inventor on more than four previously filed patent applications, other than applications filed in another country, provisional applications under 35 U.S.C. 111(b), or international applications for which the basic national fee under 35 U.S.C. 41(a) was not paid;

Neither the applicant nor the inventor nor a joint inventor, in the calendar year preceding the calendar year in which the applicable fee is being paid, had a gross income exceeding three times the median household income for that preceding calendar year, as most recently reported by the Bureau of the Census; and

Neither the applicant nor the inventor nor a joint inventor has assigned, granted, or conveyed, nor is under an obligation by contract or law to assign, grant, or convey, a license or other ownership interest in the application concerned to an entity that, in the calendar year preceding the calendar year in which the applicable fee is being paid, had a gross income exceeding three times the median household income for that preceding calendar year, as most recently reported by the Bureau of the Census.

The above four conditions come from 37 CFR 1.29, but are traced back directly to the AIA and are embodied in 35 U.S.C. 123(a). The requirement that gross income not exceed three times the median household income is specifically in the law enacted by Congress and signed by President Obama. It is not a creation of the USPTO.

The USPTO will indicate the income level that is three times the median household income for the calendar year most recently reported by the Bureau of the Census on its Internet Web site, with its Independent Inventor resource information, and on the Office’s certification of micro entity status (gross income basis) form (Form PTO/SB/15A). The Office will also make available resources to micro entities to help navigate the new micro entity procedures.

For those who may be thinking about asserting micro-entity status where it is not justified, think again. Yes, the AIA did remove the provisions from patent law that require there to be a lack of deceptive intent to fix certain problems. Prior to the AIA many mistakes could be rectified if there was no deceptive intent. The AIA made mistakes fixable even when there was deceptive intent. Notwithstanding, pursuant to Rule 1.29(j), any attempt to fraudulently establish status as a micro entity, or pay fees as a micro entity, shall be considered as a fraud practiced or attempted on the Office.

In responding to a comment asking for more information about what constitutes fraud and how the USPTO would handle close cases, presumably where the applicant qualified for small entity status and was “tempted” to go further and seek lower fees as a micro-entity where it was not justified. See comment 24 in the Federal Register Notice. To this the USPTO responded:

Applicants questioning how to resolve close situations or what penalties may result from a fraudulent certification should consider that: (1) The Federal Circuit has noted that an applicant would be ‘‘foolish’’ to claim small entity status if there is the slightest doubt about an applicant’s entitlement to claim small entity (DH Tech., 154 F.3d at 1343); (2) depending on future developments in the case law, it is possible that a patent could be held unenforceable as a consequence of a fraud or inequitable conduct relating to a micro entity or small entity certification (this was clearly possible for small entity certifications prior to the Federal Circuit’s decision in Therasense, Inc. v. Becton, Dickinson and Co., 649 F.3d 1276 (Fed. Cir. 2011).

The USPTO noted that the Federal Circuit has not yet decided the question of whether a false declaration of small entity status could constitute inequitable conduct under the Therasense standard. Still, it would be quite a risk to erroneously claim micro-entity status. Of course, if micro-entity status were claimed in good faith and there was a mistake or circumstances changed, that would not be fraud. See Rule 1.29(k).

The Author

Gene Quinn
is a Patent Attorney and Editor and founder of IPWatchdog.com. Gene is also a principal lecturer in the PLI Patent Bar Review Course and an attorney with Widerman Malek. Gene’s specialty is in the area of strategic patent consulting, patent application drafting and patent prosecution. He consults with attorneys facing peculiar procedural issues at the Patent Office, advises investors and executives on patent law changes and pending litigation matters, and works with start-up businesses throughout the United States and around the world, primarily dealing with software and computer related innovations. Gene is admitted to practice law in New Hampshire, is a Registered Patent Attorney and is also admitted to practice before the United States Court of Appeals for the Federal Circuit. CLICK HERE to send Gene a message.

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Discuss this

It’s nice to see that it’s finally being implemented, and that they took away some of the more onerous requirements which would have cost more in legal fees than an inventor would save on filing fees. I just hope that it really does work out that way where we can just ask a client “is your income less than X, and how many patent applications have you filed before?” Then again, do people really want their income level made of public record in a patent filing?

Mike ZallDecember 20, 2012 7:52 am

I see a tremendous problem with the “gross income” issue. Clients are very reluctant to give their income, attorneys are very reluctant to ask for income. Often there is a reluctance to discuss the inventors age to Make Special, but I do it. That can be embarrassing if the inventor is ten years younger than 65. Multiply that by 100 when it comes to gross income. What happens when the client says that he does not know what his/her gross income is or whether child support or alimony or social security or disability benefits are gross income? Do we need to look at their income tax returns? Quite frankly, I probably will not even raise the issue and just claim a Small Entity. It’s a benefit that will rarely be used by attorneys, and only used, if at all, by pro se applicants to file patent applications that will never issue.
We need to get rid of the gross income requirement.

Noah H.December 20, 2012 9:09 am

Maybe I’m missing something, but isn’t there an issue with the new (AIA) distinction between “applicant’ and “inventor” here, such as with respect to the 2nd requirement for establishing micro-entity status (that “Neither the applicant nor the inventor nor a joint inventor has been named as the inventor or a joint inventor on more than four previously filed patent applications…”)?

Specifically, isn’t it possible that an applicant (not an inventor – say an assignee, for example) could have many more than four previous applications but still meet this requirement as long as the “applicant:” 1) was not named as an “inventor” on any of the applications (which would probably be the case anyway for an assignee-applicant); and 2) none of the inventors (not the applicant) had more than four?

I understand that the other 3 requirements would still need to be met, including that the “applicant,” even if a juristic entity (say a non-profit), could not have a “gross income” exceeding three times the median “household income,” which itself seems at best oddly-worded to me…

Any thoughts/clarifications from those more insightful or knowledgeable than I would be appreciated!

Stan E. DeloDecember 20, 2012 1:21 pm

I tend to think that the gross income requirement has to do with the national average, as opposed to the specific income for any particular individual or entity. The Bureau of the Census would most likely not be inclined to try to figure out what any individual average income might happen to be. Perhaps I am wrong, but that is how I read it. With perhaps 50,000 applications per year to consider, it would seem to be beyond their purview to be able to review individual incomes.

Stan~

” 3. Neither the applicant nor the inventor nor a joint inventor, in the calendar year preceding the calendar year in which the applicable fee is being paid, had a gross income exceeding three times the median household income for that preceding calendar year, as most recently reported by the Bureau of the Census; and”

Mike ZallDecember 20, 2012 1:55 pm

Additional comment:

Mike ZallDecember 20, 2012 2:15 pm

Not only do you have to determine an inventors gross income, the coinventors also needs to be qualified. I could just see the conversation:
Attorney: Mr. Einstein, I want to see if you qualify for a micro-entity. Did you make less than $150,000 last year.
Mr. Einstein: Gee, I would rather not discuss that in the presence of Mr. Newton.
Attorney: Let’s go into the adjoining room and discuss this.
Mr. Einstein: You have to agree not to tell Mr. Newton. He tends to get jealous and envious.
Attorney: You are partners, aren’t you?
Mr. Einstein: No..just coinventors. I have a lot of other “balls in the air” that I do not want Mr. Newton to know about. Last year I had a big gambling win…very unusual…and I own an apple farm. Is my disclosure to you attorney client privileged? I do not want Mr. Newton to know my income or the IRS. Should I wait several weeks to file because my 2012 income is minimal?
Attorney: Let me speak to Mr. Newton, maybe he does not qualify and we will not have to discuss all these issues.
Mr. Einstein: He’s as poor as a church-mouse…does not spend a dime.
Attorney: Well, I still need to speak to Mr. Newton, perhaps he is a saver.
Mr. Einstein: He told me he had no income or savings, that is why I am putting up all the money on this project.
Attorney: Well…doing my due diligence, I still need to talk to him about his income.
Mr. Einstein: Well if he earned more than $150,000 last year I want him to kick in more money to this partnership. That SOB…he’s holding out…

….Don’t put me in the middle of that conversation. …
Mike

Stan E. DeloDecember 20, 2012 2:52 pm

Mike Z-

Yes, that would be a touchy subject indeed. It would seem to me that if you just asked Mr. Einstein to tell you honestly what he believed his annual income was, that it would absolve you from any further responsibilities in the matter. Perhaps a written and signed statement by the inventor(s) of their annual income? I find it hard to believe that a patent attorney could be held culpable in any manner if their client happened to be telling them less than the whole truth. The document would never have to revealed, unless push came to shove some day. (Hopefully never)

The inventor(s) would then be in the hot seat, and not the practitioner, who has done nothing wrong at all. If you have a client who will lie to you, that is really their problem, and not yours. They are obviously unethical, and can be left to their own devices if you have some sort of document to prove what they told you, hopefully in good faith.

Stan~

EGDecember 20, 2012 3:32 pm

To all:

The primary beneficiary of the micro entity discount are the universities (also very easy to establish who those are versus individuals): they can claim the benefit for all of their applications while the individual applicant can only do so for 5 max. So much for the few “bones thrown” by the AIA (Abominable Inane Act).

Mike ZallDecember 20, 2012 3:33 pm

Its not a question of honesty, its just that the culture we live in makes that a very sensitive subject. Try asking a deponent his income at a deposition. Three attorneys will jump down your throat.

Steve MDecember 20, 2012 3:49 pm

I can just see infringers asking courts for discovery to include micro-entity claimants’ income tax returns for IC challenges (and/or to demonstrate dishonesty to juries, etc) to the inventor(s) patent(s).

At least for independent inventors (as opposed to small companies, universities, non-profits, etc), the risk doesn’t seem worth the savings.

And do cons, cons-in-part, divisionals, reissueds, etc count against the allowed maximum of, “four previously filed patent applications?” Do reexams; perhaps where any claims have been amended, or new claims added?

Steve MDecember 20, 2012 3:53 pm

. . . do abandoned applications count against the four allowed?

Do apps filed before passage of the AIA count against the four?

Stan E. DeloDecember 20, 2012 6:47 pm

Steve M-

I tend to agree about micro-status perhaps not being such a good idea or deal after all. Sounds pretty risky to me, for being able to save a few hundred dollars most times? I think patent applications filed prior to next March will not be a problem as regards micro status, and fortunately I got mine filed before the AIA was passed using a small entity status. As I seem to recall, there is no limit to applications for small entities, until they start to get really successful, when it won’t really matter anymore.

Stan~

PS DIPDecember 21, 2012 6:40 am

If the median income is 50K and you have to be below three times that value, doesn’t this mean a substantial discount for 75-80% of the US population? Shouldn’t the question then be whether an inventor does not qualify for the discount? Folks are much happier to brag about their high income.

(Yes, I know a hard working first year associate often makes more than 150K in the crazy world we live in, but 150K is still a lot of money.)

EG is right that this was written for Universities anyway. Anybody else gaining a benefit is just gravy. How come the notes above about who qualifies do not include the University auto-qualifications?

AnonDecember 21, 2012 7:36 am

EG and PS DIP are correct – this is for the universities, and only nominally for the actual small inventors (you do not need both a monetary cap and a number of applications cap, and I can see NO reason for that number of applications cap – in fact, I think it goes against the very purpose of the patent office (promoting).

Along that same line of thought (focus on universities), does anyone know (or have a theory) why the technical corrections bill(s) have not attempted to correct the AIA flaw applying certain provisions (i.e. PUR exemption) only to US universities in apparent violation of signed international treaties?

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